Building momentum, one step at a time

Sitting down to write your first family budget can feel overwhelming. Like you’re attacking a wall of expenses.

Facing a wild mix and match pile of costs like that, and feeling sure that you haven’t even thought of all of them, can make most normal people stop, drop their pencil, and walk away. Let me tell you, I have been there and I understand. You have my sympathy.

As a financial coach, though, I’m not going to let it end there. You have a responsibility to manage your money, and ignoring that is just going to make things worse. Walking away is not a realistic option. You need to scale that wall, climb that pile, and overcome your fears and frustrations about budgeting.

Like any problem that seems overwhelming, the answer is breaking it up into smaller steps.

Step 1: Determine Your Income. For most of the five people reading this, that’ll be easy. A fixed, regular income is still pretty common. How many paychecks are you going to receive in the next month? Total those up, write down the number, and label it “INCOME.” Done.

If you’re one of the lucky few who receives an irregular income, this seems like more of a challenge, but you can’t skip this step. The best general advice I have is to take your worst average month’s income and use that as a baseline to budget from. If more comes in, excellent! You can put it to use in one of the next steps.

We can’t spend more than we have coming in, and we need to put every dollar to work, starting with…

Step 2: Pay for Your Necessities. Your first priority is to take care of those things that keep your household functioning. I’ve covered this ground before, in explicit detail, so I won’t spend a lot more time on it. The big point of this step, though, is to make sure that you have enough income to cover the basics, and see for yourself how much is left over once those basics are covered. In most cases, that margin way bigger than you’d think.

Next…

Step 3: List Your Goals. What is it that you want to do with your money? What’s on the top of your list? Do you want to pay off debts? Save up a cushion for emergencies? Invest for the future? Build up a college fund? Go on a huge vacation? I know the order that I’d advise you to do them in, but ultimately you get to make the decision. So, pick one.

You’ll be using the margin you have from Step 2 to fund this goal (including any unexpected irregular income), but you have one more step before you’re ready to go…

Step 4: Say “No” Everywhere You Can. That big goal, and all of those necessities, probably didn’t account for every expense in that massive wall from before. For everything that’s left, you have to ask yourself this question: “This month, is this thing more important than reaching my goal?” For a lot of items, the answer will be a frustrating “Yes.” For example, you might find that the pets get a little bitey if you don’t feed them often enough. Not to mention that your children do need new clothes now and then. And it’s really hard to say “No” to debt payments.

Still, there will be a bunch of things you can say “No” to. Like Cable TV, or eating out. Plus, it gives you the chance to take a hard look at how much you’re spending on those “Yes” items. Maybe your kid doesn’t need new school clothes from the mall. Who knows? You might even find a few ways to cut back on your necessities.

By now, you should have a budget that works for the upcoming month. Finally, you get to…

Step 5: Do It Again Next Month. There is no such thing as the perfect budget. Every month is different, and every month’s budget should reflect that. Each time you sit down with a pencil and write it out, you give yourself the opportunity to learn from mistakes and develop good spending habits.

This isn’t a one time deal. It’s a lifetime deal.

What do you think? Did I skip a step? Let me know in the comments below!

The third week covers how to create a complete and thorough budget. Below are my notes from the lesson, including the key points that I highlight from the video when leading the class, and some supplemental material that I think could help the class go further on this topic.

Lesson 3, Cash Flow Planning

Key Points

Spend all your money on paper before the month begins. When it comes to cash flow planning, the emphasis is on the plan. Making a plan puts every dollar you earn to work towards some goal. It’s true that reality might interrupt your plan, forcing you to adjust, but having no plan to begin with turns what would have been an interruption into a crisis.

Use the envelope system for successful cash management. Debit and credit cards sell us on the convenience, but what the really do is numb you to the amount of money being spent. To gain control over spending, you need to see and feel the money leaving. Setting aside cash for items on your budget (such as groceries, restaurants, clothing, etc.) can help rein in costs in those categories.

Give your budget 90 days to really start working. It takes time for a new skill to develop into moderate proficiency. Don’t think you’re going to be the exception. Even four years later, my family is still learning ways to improve our monthly money management process.

I have friends and family that have adopted children from all over the world. Each of them so has been so blessed. As a result, it bothers me when I hear stories of international leaders playing politics, passing bad legislation, and denying the children in their country a good home when it’s available. Russia’s recent ban on adoptions to America doesn’t hurt anyone but the children languishing in their orphanages and the families here that want to adopt them. Guatemala’s similar policies aren’t any better.

Is there something valuable or important or cool or funny or weird or awesome out there I missed this week? I can’t hit it all, but you should let me know about it by dropping me a line or sharing it in the comments below! I’d appreciate the heads up.

I’m the father of three great kids. I’ve taken two of them through the process of learning to ride a bicycle. (Number 3 has a few years before she has a go.) I distinctly remember standing with each of them at the top of a grassy hill at a local park, ready to let them loose under the tender mercies of gravity. I told them what was going to happen, and every step that they needed to take. Steer straight. Keep pedaling.

The words I never told them?

“You’re going to fall down.”

I knew it was going to happen, but I also know how powerful that kind of suggestion can be when learning a new skill. It was better for them to just fall, realize that it wasn’t so bad, and try again. It wouldn’t earn me any Father of the Year awards, but it got the job done. They both ride great.

Maybe I should have let them know what was coming, though. The fact is, whenever we start to learn a new skill, we’re going to fall down. Failure is always an option. If it weren’t, then success wouldn’t be worth it. Falling down is how we learn to do things better.

When I coach someone to put together their very first budget as a family, I know that it’s not going to go perfectly. Expenses will be underestimated or forgotten. Or there won’t be enough open communication to get all of the numbers right. Or they won’t hold themselves accountable to their plan. All of that is expected and normal. It just can’t stay that way.

Look, if how you handle your money is the biggest problem in your life – if your debt payments are overwhelming you, and you can’t see how to pay all of your bills – then working to make that better is the biggest opportunity you have to improve your life. Seizing that opportunity will require you to make a series of small, difficult changes, because there isn’t a single magic step you’ll take that will fix it all. To get the results you need it’s going to take time and practice.

After that first budget fails, talk about what mistakes were made and identify how it can be done better. With each month, it’ll improve more and more. Soon enough, there’s a good habit and a working plan.

And then you’ll fall down again.

Even after three years of being financially responsible and doing a lot of really good things, my family still makes mistakes. We’re still learning new lessons and figuring out new ways to do it better.

So, take the risk. You’ll probably fall down. That’s alright. Just pick yourself up and dust yourself off and keep trying.

Question: Is fear of failure keeping you from trying something new? How many times have you told yourself that you can’t make a budget because it just doesn’t work? What can you do today to help pick yourself up and try again?